The Credit Risk Retention Rule

The Credit Risk Retention Rule (see OCC Bulletin 2015-8) (the “Rule”) imposes these requirements on firms, that package financial securities, into asset-backed securities by organizing a securitization transaction.  The final rule defines qualified residential mortgages (“QRM”) to include all loans that meet the qualified mortgage definition defined in Section 129c of the Truth and Lending Act (15 USC 1639 c) and issued by the Consumer Financial Protection Bureau (“CFPB”).  Securitization of QRM’s are exempt from risk retention.  The final rule requires the sponsors to retain 5% of the credit risk.  The final rule includes a reduced risk retention requirement for asset-backed securities collateralized by commercial loans, commercial real estate loans or auto loans that meet certain underwriting standards.

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